5 Things You Need to Know About Interchange Reclaims

25th June 2020
Travis Ward
Travis Ward

Last week, the UK Supreme Court upheld the Court of Appeals’ ruling which concluded interchange fees, also known as Multilateral Interchange Fees (MIFs) – set by Visa and Mastercard – restricted competition in the payments industry.

This is welcome news for retail merchants, who have experienced significant revenue loss throughout the COVID-19 pandemic, and now have the chance to reclaim historical interchange fees – with the potential for a sizeable cash injection.

Based on claims going back to 2013, the maximum pay-out for UK merchants could be an estimated €17 billion. If European merchants also proceed, it could be as much as €68 billion.

If you are interested in pursuing a reclaim, here are five things you should know before starting the process:

1. MIFs are anti-competitive. This Article 101(1) question of law has finally been decided. The Multilateral Interchange Fees, set by the global schemes, have been deemed anti-competitive by the UK’s highest court.

2. The exemption under Article 101(3), known as the ‘fair share issue’, is an uphill climb for the schemes. The issue explores whether or not an exemption to Article 101(1) could be found on the basis of the benefits a merchant receives from the MIFs. The schemes face a tough battle on this issue as to justify the cost of MIFs, they must demonstrate – with clear and empirical evidence – a claiming merchant received as much of a benefit from the MIF as it paid out. This means a determination under Article 101(3) will be case-specific and merchants should anticipate a fight on this point.

The question of whether an exemption to the determination under Article 101(1) can be established is still pending in the Sainsbury’s case – with the Supreme Court referring the issue back to the Competition Appeal Tribunal (CAT) for final determination.

3. A reclaim of MIFs will not be automatic. A claim must be lodged against the card schemes and the size of any reclaim will be decided on the individual facts of the claim.

4. The accurate quantification of claims is crucial. This begins with assessing how much interchange was paid over the claim period and may include quantifying ‘pass-on’. Pass-on is the argument that a merchant can mitigate some of the harm caused by excessive MIFs by either (i) negotiating lower costs with its suppliers or (ii) passing on the cost of MIFs to consumers in the form of higher prices. The ‘broad axe’ approach to the pass-on issue was the lone successful argument for the schemes in the Sainsbury’s case, which saw the Supreme Court directly place the burden on merchants to establish whether and to what extent any MIFs were passed-on – should the schemes adequately raise the allegation.

5. The introduction of the Interchange Fee Regulation (IFR) in 2015 does not end the claim period. In the Supreme Court’s decision, it stated the European Commission in enacting the IFR, did not address the issues of EU competition law – they were merely trying to regulate the fees. This has opened the door to the potential for a particular merchant to argue that no level of MIF is permissible. It also means merchants could lodge claims for all interchange fees paid over the claim period, even those post-IFR. Merchants have a claim period of five years in Scotland and six years in the rest of the UK.

Due to the broad axe approach, schemes have the opportunity to reduce the claims lodged by merchants. Without robust analysis to stand up to scheme scrutiny, merchants could see a much smaller pay-out than they’re entitled to. At CMSPI, we are supporting over 50 of the UK’s largest retailers in calculating and demonstrating the value of their claims, to provide accurate analysis to withstand intense examination.

Get in touch with our payments experts now to find out how we can help you maximise the value of your claim.

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